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Frequently Asked

Questions (FAQs) on

Bonds

What are Bonds?

Bonds are a kind of investment instruments raised by companies to raise capital in the form of a loan. When you buy bonds, in some sense you give a loan to the bond issuing company for the amount that you pay for bonds. The bonds are issued either by government or private institutions. The bonds are like a written promised made by the issuing institution to pay the bonds buyer the loan amount & certain interest for the pre defined bond maturity term.

Some people also interchangeably use the word Bonds & Debentures but in actual senses Debentures are different from Bonds. Debentures are often unsecured deposits and are raised for short term where as Bonds are secured deposits and are raised for a longer period.

There are tax free bonds & taxable bonds too.

What are tax saving bonds in India?

Tax saving bonds are those bonds whose interest income is fully exempted from Income Tax. Income from these bonds is not clubbed with Interest Income while computing your total income for a financial year. These tax saving bonds are normally issued by Govt of India (GOI) & hence are considered very safe to invest. They come with investment period of 10-15 & 20 years and can be even traded on stock exchanges after certain years of issuance.

Who should invest in Bonds?

If you are a risk-averse investor, meaning safety of your money is more important than returns or else you are a retired individual who want to keep your principle safe even if it requires to accept lower returns, then Bonds are for you. You should look for high rated good performing bonds and compare properly before investing your money in bonds.

What are Capital Gains Bonds?

If you make a capital gain (profit) by way of selling an asset which you held for a long term (more than a year), then the profit or capital gains made by you is subject to long term capital gains tax. The capital gains made by you, if re-invested in certain bonds (capital gains bonds) within 6 months of making the capital gains, then the capital gains are exempted from tax. Currently NHAI & REC are offering the Capital Gains Bonds under section 54EC.

Is investing in Bonds complex?

Yes, it is. There is a big list of bonds and each f the bonds have their own terms. You need to compare the ratings, coupon rates, interest, yield etc before investing in bonds. You can take the help of financial advisors who specialize in bonds as they bring you all the information at one place an help you taking the right investment decisions.